New Refinancing Program Helps Low-Equitied Homeowners

There are some changes in store for homeowners looking to refinance with high loan -to-value (or LTV) ratios. At the end of 2017, the Federal Housing administration plans to launch a new refinance program. But first, they've extended the popular Home Affordable Refinance Program (HARP)--which was created to for homeowners who owe more than their home is worth thanks to the housing crisis--through the third quarter of 2017.

Why the extension?

To ensure that high LTV borrowers who are eligible for HARP will not be without a refinance option while the new refinance offering is being implemented, FHFA is creating a bridge to this future program. HARP has been extended through September 30, 2017. HARP continues to be one of the most successful crisis-era programs with more than 3.4 million homeowners already having been approved.  An estimated 300,000 owners are eligible for HARP but have not yet applied. The new program, meanwhile, will help homeowners who want to finance but whose loan to value ratios are lower than those required by Fannie or Freddie. "Providing a sustainable refinance opportunity for high LTV borrowers who have demonstrated responsibility by remaining current on their mortgage makes financial sense both for borrowers and for Fannie Mae and Freddie Mac," said FHFA Director Melvin L. Watt. "This new offering will give borrowers the opportunity to refinance when rates are low, making their mortgages more affordable and thus reducing credit risk exposure for Fannie Mae and Freddie Mac."

What we know about the new program

Though it's still almost a year away, we do know a few things about the new refinance program. Eligible borrowers are not subject to a minimum credit score, there is no maximum debt-to-income ratio or maximum LTV, and an appraisal often will not be required. There are a few requirements, though. Homeowners:

• Must not have missed any mortgage payments in the last six months
• Must not have missed more than one payment in the last 12 months
• Must have an income source

Homeowners must also benefit from the refinance in one of four ways:

• Reduced monthly principal/interest payment
• Lower interest rate
• Shorter amortization term
• More stable mortgage type, like moving from an adjustable-rate mortgage to a fixed-rate mortgage

However, unlike HARP, there are no eligibility cut-off dates connected with the new offering, and borrowers will be able to use it more than once to refinance their mortgage. Borrowers with existing HARP loans are not eligible for the new offering unless they have refinanced out of HARP using one of the Enterprises traditional refinance products.